Microsoft is rolling out free Windows 10 upgrades later this
month, but that might be bad news for one of its longtime
partners: $140 billion chipmaking giant Intel.

The reason is simple. Every time Microsoft releases a new Windows
operating system, a lot of consumers buy a new PC in order to
upgrade their set-up. But with Microsoft offering free updates of
its operating system to all existing users of Windows 7 and 8.1,
many people will simply opt to upgrade the software without
replacing their PC.

That means overall PC sales could slow, and every company that
makes money off PC components — such as Intel who drives most of
its sales from PC chips — could also see its sales drop in the
coming months.

“Based on early feedback from some early PC OEMs, they’re not
expecting much of a big jump [in PC sales], and the reason is
Microsoft offering free Windows 10 upgrades. The view now in the
industry is the effect from the Windows 10 launch will be fairly
muted, at least when it comes to new PC purchases,” Gartner
analyst Mark Hung told Business Insider.

Gartner expects the global PC shipment market to shrink 4.5% this
year, after reporting a sharp 9.5% sales decline in the second
quarter alone.

That’s bad news for Intel, which is scheduled to report second
quarter earnings on Wednesday. Analysts have already cut EPS
estimates to $0.50 per share, and $13.06 billion in revenue,
which is below the mid-point of Intel's guidance of $13.2 billion
for the quarter.

“It’s likely going to be a miss. Full estimates have been coming
down since last week. We are definitely expecting weakness in
PCs,” Wedbush Securities SVP of equity research Betsy Van Hees
told us.

IDC analyst Mario Morales says Windows 10 will eventually drive
up PC sales, but it just won’t happen immediately. “It’s going to
take some time for [Windows 10] to really start kicking into the
market, especially around the enterprise, and I think that would
really have to happen to drive a really nice uptick in the
market,” he said.

Morales added Intel will likely announce some more layoffs in the
coming months, as the company continues to right-size its overall
business. Last month, Intel CEO Brian Krzanich
confirmed in a leaked company-wide email that Intel will
start layoffs “no more than a few hundred employees in any
given site or geography."